Gump Shrimp Company
On January 1, 2011, Gump Shrimp Company purchased a ship for $1,000,000. It has a ten-year useful life and a salvage value of $100,000. The company uses the double-declining-balance method.
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Refer to the information provided for Gump Shrimp Company. What was the depreciation expense for Gump Shrimp for the year ended December 31, 2012?
A) $ -0-
B) $180,000
C) $160,000
D) $200,000

Question

Gump Shrimp Company 
On January 1, 2011, Gump Shrimp Company purchased a ship for $1,000,000. It has a ten-year useful life and a salvage value of $100,000. The company uses the double-declining-balance method.
-
Refer to the information provided for Gump Shrimp Company. What was the depreciation expense for Gump Shrimp for the year ended December 31, 2012?
A) $ -0-
B) $180,000
C) $160,000
D) $200,000

Quizplus · Accepted Answer

The double-declining-balance method calculates depreciation by doubling the straight-line rate. The straight-line rate is 10% (1/10 years), so the double rate is 20%. For 2011, depreciation is $200,000 (20% of $1,000,000). For 2012, it is 20% of the remaining book value ($800,000), which is $160,000.